GOSS: Retirement planning should include kicking debt to the curb

This article is the second in a series that will help you answer the question, “Can I afford to retire?”

In January I encouraged you to set goals and track spending for 30 days. How did you do? Do you like where your money goes each month? I wanted you to do this to lay the groundwork for this month’s article, which is about paying off debt.

I am seeing more and more people who come to me for pre-retirement advice, and they still have a mortgage, car payments, and credit card debt. We have become comfortable “making payments” each month. My most financially secure clients are debt free. Many of them continue to save in retirement because they don’t have to spend all of their income on bills. If your only expenses are utilities, taxes, food and gas, you can live pretty cheap. And that is what you want.

Let’s say you retire at age 62, and your monthly expenses are $2,000. You feel comfortable because you can pay your bills each month with your $2,000 Social Security check. Fifteen years later, the same things you paid $2,000 per month for now cost $2,808. That is the power of inflation. If you have been investing your whole life, you can possibly begin taking distributions from your investment accounts to cover the offset. Or, if that $2,000 per month expense included a house payment and you paid it off, maybe you’re OK. I just don’t like to count on maybe.

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Take a look back at where your money went last month. If you have debt, is there some way you can move spending from one category (like eating out) to debt payment? You need to have a plan to be debt-free in retirement and here is what I suggest. Get out all of your debt statements, and make a list starting with the smallest debt. This list will include credit cards, student loans, your mortgage, your car and any other money you owe to anyone. List who you owe, how much you owe, the interest rate you’re paying, and the minimum monthly payment. Do this for each debt.

Next, see how much money you can free up for debt repayment by looking back at last month’s spending. Where can you cut back to make this happen? Now, go back to your list of debts. If you applied that extra money to that first, smallest debt, how fast could you pay it off? If you want to refine this process, go to www.bankrate.com and use their Debt Paydown Calculator. This tool allows you to enter the balance, interest rate and monthly payment for a number of debts, then it automatically (and for free) shows you the fastest way to pay it all off.

The pre-retirees I meet would like to do some traveling, enjoy time with their grandkids, and have a relaxed retirement. They do not want to worry about whether they can make ends meet. Please include paying off debt as one of your pre-retirement goals.

Sherri Goss is vice president of Rosenberg Financial Group Inc., with offices in Macon and Warner Robins. You can reach her by calling 922-8100, or via email at sherri@rfmoney.com.